Existing-home sales drop for second month; end of tax credit seen as a cause

By Dina ElBoghdady
Washington Post Staff Writer
Friday, July 23, 2010; A15

Sales of previously owned homes dipped in June for the second consecutive month and are expected to keep dropping at least through the rest of the summer, now that a lucrative homebuyer tax credit has expired.

Purchases of existing single-family homes, condominiums and townhouses fell 5.1 percent in June from May to a seasonally adjusted annual rate of 5.37 million, the National Association of Realtors reported Thursday.

The results, which measure only completed transactions, are better than analysts expected and capture the lingering effects of the tax credit. To qualify, buyers had to sign a contract by April 30 and close on it by June 30 -- though that closing deadline was recently extended to Sept. 30.

The tax credit contributed to a surge in sales in early spring. Many economists predicted that home sales would plunge briefly and then rebound once the April deadline passed. But they are now questioning how soon the rebound will occur given increased uncertainty about the economy and high unemployment.

"If that pause in housing activity is only for two or three months . . . then I think we're on our way to a decent recovery," said Lawrence Yun, chief economist of the Realtors group. "But if the pause lasts for five months or longer, then we're looking at trouble."

The group reported that the supply of homes is up 2.5 percent, to nearly 4 million, from the month before. But it's about 13 percent lower than the record 4.58 million in July 2008.

The report also said that sales fell from May to June in nearly every region of the country, except the Northeast, where they climbed almost 8 percent.

So far, economists predict the national sales figures will be measurably lower in July, and an index released by the Realtors group earlier this month suggests the same. That index showed that the number of contracts signed on existing homes plunged 30 percent in May to the lowest level since the group started tracking the numbers in 2001. The index is widely considered a reliable gauge of how many purchase agreements will be completed within the next two months.

The dismal results add to a gloomy government report released this week showing that new home construction dropped 5 percent from May to June. A separate industry report showed that builder confidence has slumped.

Pessimism about the housing market's recovery has deepened despite record-low mortgage rates. The average rate on a 30-year fixed-rate loan dropped to 4.56 this week, according to Freddie Mac. That's the lowest rate since the company started tracking the numbers in 1971.

As for prices, they are holding up. The median existing-home price was $183,700 in June, about 1 percent higher than in June last year. In the Washington area, the median price was $345,900, up 2.2 percent from a year ago. Sales in the Washington region rose 9.9 percent during that time.

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